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federal taxation

Questions and Answers of Federal Taxation

On September 30, Silver Corporation, a calendar year taxpayer, sold a parcel of land (basis of $400,000) for a $1,000,000 note. The note is payable in five installments, with the first payment due
Julio is in the 32% tax bracket. He acquired 2,000 shares of stock in Gray Corporation seven years ago at a cost of $50 per share. In the current year, Julio received a payment of $150,000 from Gray
How would your answer to Problem 34 differ if Julio were a corporate shareholder rather than an individual shareholder and the stock ownership in Gray Corporation represented a 25%
Barney Chang and Aldrin, Inc., a domestic C corporation, have decided to form BA LLC. The new entity will produce a product that Barney recently developed and patented. Barney and Aldrin each will
Robin Corporation is owned as follows: Isabelle.................................................26% Peter, Isabelle’s husband...................19% Sonya, Isabelle’s
Which statement below is incorrect about the Section 179 deduction? a. The Section 179 deduction is allowed even if there is a loss. b. The Section 179 deduction may be reduced based on
The exclusion of state and local bond interest from Federal income tax often is criticized as creating a tax haven for the wealthy. Critics, however, often fail to take into account the effect of
Parent, a domestic corporation, owns 100% of Block, a non-U.S. corporation, and Chip, a domestic corporation. Parent also owns 45% of Trial, a domestic corporation. Parent receives no distributions
Continue with the results of Problem 24. Prepare the GAAP journal entries for Britton’s year 1 income tax expense. Data From Problem 24.Britton, Inc., an accrual basis C corporation, sells
Your client, New Shoes Ltd., is a retailer that often issues store gift (debit) cards to customers in lieu of a cash refund. You recall that a special rule allows accrual method taxpayers to defer
Your friend Hui is an investor in bluecoin, a virtual currency. Indicate whether and how she is subject to Federal income taxation in the following circumstances a. Earns $1,000 in bluecoin from
Elizabeth makes the following interest-free loans during the year. The relevant Federal interest rate is 5%, and none of the loans are motivated by tax avoidance. All of the loans were outstanding
Determine the taxpayer’s current-year (1) economic income and (2) gross income for tax purposes from the following events. a. Ja-ron’s employment contract as chief executive of a large
Drake Appliance Company, an accrual basis taxpayer, sells home appliances and service contracts. Determine the effects of each of the following transactions on the company’s 2019 gross income
Dr. Randolph, a cash basis taxpayer, knows that she will be in a lower marginal tax bracket next year. To take advantage of the expected decrease in the marginal tax rate, Randolph instructs her
Liz and Doug were divorced on December 31, 2019, after 10 years of marriage. The couple’s income received before the divorce included: Doug’s
How does the tax benefit rule apply in the following cases? a. In 2017, the Orange Furniture Store, an accrual method taxpayer, sold furniture on credit for $1,000 to Sammy. Orange’s cost of
Ridge is a generous individual. During the year, she made interest-free loans to various family members when the Federal interest rate was 3%. What are the Federal tax consequences of the following
Shanna, a calendar year and cash basis taxpayer, rents property from Janice. As part of the rental agreement, Shanna pays $8,400 rent on April 1, 2019, for the 12 months ending March 31,
Lark Corporation is considering the acquisition of an asset for use in its business over the next five years. However, Lark must decide whether it would be better served by leasing the asset or
On November 4, 2017, Blue Company acquired an asset (27.5-year residential real property) for $200,000 for use in its business. In 2017 and 2018, respectively, Blue took $642 and $5,128 of cost
For each of the following independent transactions, calculate the recognized gain or loss to the seller and the adjusted basis to the buyer. a. Kiera sells Parchment, Inc. stock (adjusted basis
Blue Corporation, a manufacturing company, decided to develop a new line of merchandise. The project began in 2019. Blue had the following expenses in connection with the project: The new
In 2019, Gray Corporation, a calendar year C corporation, holds a $75,000 charitable contribution carryover from a gift made in 2014. Gray is contemplating a gift of land to a qualified charity in
Julieta Simms is the president and sole shareholder of Simms Corporation, 1121 Madison Street, Seattle, WA 98121. Julieta plans for the corporation to make a charitable contribution to the University
On December 23, 2019, the directors of Partridge Corporation, an accrual basis calendar year taxpayer, authorized a cash contribution of $10,000 to the American Cancer Association. The payment is
Joseph Thompson is president and sole shareholder of Jay Corporation. In December 2019, Joe asks your advice regarding a charitable contribution he plans to have the corporation make to the
Noelle’s diamond ring was stolen in November 2017. She originally paid $8,000 for the ring, but it was worth considerably more at the time of the theft. Noelle filed an insurance claim for the
Monty loaned his friend Ned $20,000 three years ago. Ned signed a note and made payments on the loan. Last year, when the remaining balance was $11,000, Ned filed for bankruptcy and notified Monty
Ida, who has AGI of $80,000 before considering rental activities, is active in three separate real estate rental activities. Ida has a marginal tax rate of 22%. She has $12,000 of losses from
Thomas believes that he has an NOL for the current year and plans to carry it forward, offsetting it against future income. In determining his NOL, Thomas offset his business income by alimony
Ted and Marvin Brown purchased an apartment building in 2007 as equal tenants in common. After a hectic decade of co-ownership, the brothers decided that their business association should be
Maple Company owns land (adjusted basis of $90,000; fair market value of $125,000) that it uses in its business. Maple exchanges it for another parcel of land (worth $100,000) and stock (worth
Determine the realized, recognized, and postponed gain or loss and the new basis for each of the following like-kind exchanges: g. Create a Microsoft Excel spreadsheet that—by entering the
Randall owns an office building (adjusted basis of $250,000) that he has been renting to a group of physicians. During negotiations over a new seven-year lease, the physicians offer to purchase the
Clyde had worked for many years as the chief executive of Red Industries, Inc., and had been a major shareholder. Clyde and the company had a falling out, and Clyde was terminated. Clyde and Red
Sally is single and has taxable income of $170,000 as of November 30 of this year. She wants to sell a Rodin sculpture that has appreciated $90,000 since she purchased it six years ago, but she does
Jinjie owns two parcels of land (§ 1231 assets). One parcel can be sold at a loss of $60,000, and the other parcel can be sold at a gain of $70,000. Jinjie has no nonrecaptured § 1231 losses from
Siena Industries (a sole proprietorship) sold three § 1231 assets on October 10, 2019. Data on these property dispositions are as follows. a. Determine the amount and the character of the
Lance H. and Wanda B. Dean are married and live at 431 Yucca Drive, Santa Fe, NM 87501. Lance works for the convention bureau of the local Chamber of Commerce, while Wanda is employed part-time as a
In the current tax year, Blake Smith provided more than half of the support for his cousin, niece, and a close family friend. Blake lives alone and sends a monthly support check to each person. None
In late 2019, the Polks come to you for tax advice. They are considering selling some stock investments for a loss and making a contribution to a traditional IRA. In reviewing their situation, you
Compute the taxable income for 2019 for Emily on the basis of the following information. Her filing status is
In 2019, David is age 78, is a widower, and is a dependent of his son. How does this situation affect the following? a. David’s own individual filing requirement. b. The standard
For tax year 2019, determine the number of dependents in each of the following independent situations. a. Leo and Amanda (ages 48 and 46, respectively) are husband and wife and furnish more than
Wesley and Camilla (ages 90 and 88, respectively) live in an assisted care facility and for 2018 and 2019 received their support from the following sources: a. Which persons are eligible to
Taylor, age 18, is a dependent of her parents. For 2019, she has the following income: $4,000 of wages from a summer job, $1,800 of interest from a money market account, and $2,000 of interest from
Morgan (age 45) is single and provides more than 50% of the support of Tammy (a family friend), Jen (a niece, age 18), and Jerold (a nephew, age 18). Both Tammy and Jen live with Morgan, but Jerold
Bob and Carol have been in and out of marital counseling for the past few years. Early in 2019, they decide to separate. However, because they are barely able to get by on their current incomes, they
Which of the following individuals are required to file a tax return for 2019? Should any of these individuals file a return even if filing is not required? Why or why not? a. Patricia, age 19,
Roy and Brandi are engaged and plan to get married. During 2019, Roy is a full-time student and earns $9,000 from a part-time job. With this income, student loans, savings, and nontaxable
Jayden calculates his 2019 income tax by using both the Tax Tables and the Tax Rate Schedules. Because the Tax Rate Schedules yield a slightly lower tax liability, he plans to pay this
Find a Federal or state proposal for a soda tax or sweetened beverage tax. Apply the AICPA’s Principles of Good Tax Policy to support your recommendation for or against the bill.
A friend of yours, who is a philosophy major, has overheard the conversation described in Problem 28 and declares that all tax research is “immoral.” She says that tax research enables people
For her tax class, Yvonne is preparing a research paper discussing the tax aspects of qualified stock options. Explain to Yvonne how she can research the provisions on this topic.
To locate an IRS Revenue Procedure that was issued during the past week, which source would you consult? a. Federal Register. b. Internal Revenue Bulletin. c. Internal Revenue
Two independent situations are described below. Each situation has future deductible amounts and/or future taxable amounts produced by temporary differences. The enacted state and Federal tax
Two independent situations are described below. Each involves future deductible amounts and/or future taxable amounts produced by temporary differences. The enacted state and Federal tax rate is
At the end of year 6, the tax effects of temporary differences reported in Tortoise Company’s year-end financial statements were as follows. A valuation allowance was not considered necessary.
Cavan Company prepared the following reconciliation between book income and taxable income for the current year ended December 31, year 1. Pretax accounting income
Parent, a domestic corporation, owns 100% of Block, a non-U.S. corporation, and Chip, a domestic corporation. Parent also owns 45% of Trial, a domestic corporation. Parent receives no distributions
Using the facts of Problem 10, determine the following. a. The 2019 end-of-year balance in Cortez’s deferred tax asset and deferred tax liability balance sheet accounts. b. The value to
Phillips, Inc., a cash basis C corporation, completes $100,000 in sales for year 1, but only $75,000 of this amount is collected during year 1. The remaining $25,000 from these sales is collected
Continue with the results of Problem 22. Prepare the GAAP journal entries for Phillips’s year 1 income tax expense. Data From Problem 22.Phillips, Inc., a cash basis C corporation, completes
Britton, Inc., an accrual basis C corporation, sells widgets on credit. Its book and taxable income for year 1 totals $60,000 before accounting for bad debts. Britton’s book allowance for
Identify whether each of the following items typically constitutes positive or negative evidence when a manufacturing entity assesses whether a valuation allowance is required or should be adjusted
LaceCo has adopted certain aggressive policies concerning its transfer pricing procedures. The entity estimates that it will reduce its Federal income tax liability by $400,000 as a result of these
On March 1 , 2018, Sara h entered into a three-year lease of an automobile used exclusively in her business. The automobile's FMV was $58,500 at the inception of the lease. Sarah made ten monthly
Woburn Corporation uses the calendar year as its tax year. Woburn purchases and places into service $1.7 million of depreciable property during 2018: You are working in Woburn's tax department and
Large Corporation acquired and placed in service the following 100% business-use assets. Large did not claim Sec. 179 or bonus depreciation expensing on any of these properties.• Truck (light-duty,
Turner Corporation uses the calendar year as its tax year. It purchases and places into service $1.97 million of property during 2018 to use in its business: What is Turner's total depreciation
Tampa Corporation sold the following assets in 2018: a. What is the depreciation deduction for each asset in 2018? b. Compute the gain or loss on each asset sold. Depreciation/ Cost- Recovery
Bobby's marginal tax rate has been low for several years because his sole proprietorship has had low profits. Therefore, he has not elected Sec. 179 expensing, elected out of bonus depreciation, and
How much of the following expenses are currently deductible by a cash basis taxpayer?a. Medical prescriptions costing $20 paid by credit card (medical expenses already exceed the 7.5% of AGI
Dana manages real estate and is a cash method taxpayer. She changes to the accrual method in 2019. Dana's business income for 2019 is $30,000 computed on the accrual method. Her books show the
Don owns equipment that he purchased several years ago for $400,000. Over the years he properly deducted $110,000 of depreciation. The depreciation will have to be recaptured as ordinary income on
Debbie owns a building with a basis of $300,000 and a holding period starting on May 10, 2006. Debbie exchanges the building for a building owned by Doug on July 23, 2018. Doug's building has a FMV
The Electric Corporation, a publicly held corporation, owns land with a $1,600,000 basis that is being held for investment. The company is considering exchanging the land for two assets owned by the
Edith, who has no other sales or exchanges and no nonrecaptured Sec. 1231 losses, sells three tracts of land that are used in her trade or business. Edith is single, and her taxable income is
At the beginning of 2018, Silver Corporation has a $95,000 capital loss carryforward from 2017. During 2018, the corporation sells land, held for four years, and realizes an $80,000 gain. Silver has
Dillion has taxable income of less than $300,000 without considering the $53,000 Sec. 1231 gain mentioned below, and he has a tax rate of 35%. He has $40,000 of net nonrecaptured Sec. 1231 1osses at
Arnie, a college student, purchased a truck in 2016 for $6,000. He used the truck 70% of the t ime as a distributor for the local newspaper and 30% of the time for personal use. The truck has a
Assume the same facts as in Problem 1:13-54 except the taxpayer is a corporate taxpayer with a 21% tax rate and answer the ten true-false questions. 1. Some or all of the gain on sale of #1 is
Glen, whose tax rate is 32%, sells each of the following assets for $200,000. Each case is an independent case. Sec. 1231 Ordinary Taxed Gain (Loss) Income at 32% at 25% at 20% at 15% Тахed
In 2012, Jack purchased undeveloped oil and gas property for $900,000 and paid $170,000 for intangible drilling and development costs. He elected to expense the intangible drilling and development
Ed operates a storage business as a sole proprietorship and owns the following assets acquired in 1999:Warehouse...........................................................$400,000Minus: Accumulated
Tony, who is single and 58 years old, is considering early retirement from his salaried job. He currently has $90,000 salary and also earns $50,000 profit from a consulting business. What advice
Brian and Jennifer are a married couple who believe they may be subject to the AMT this year. Currently, they calculate their alternative minimum taxable income (AMTI) to be $900,000.a. What is their
AMT Computation. William and Maria Smith are a married couple filing jointly. They have no children and report the following items in 2018:Taxable
In each of the following independent situations, determine the amount of the child and dependent care tax credit. (Assume that both taxpayers are employed and the year is 2018.)a. Brad and Bonnie are
Lou and Stella North are married, file a joint return, and have two dependent children in college, Phil and Jaci. Phil attends a State University in a neighboring state, and Jaci attends a State
Carolyn is unmarried and has one dependent child, age 6, who lived with her for the entire year. In 2018, she has income of $ 16,000 in wages and $6,000 of unearned income (none of which was
Latisha is an unmarried taxpayer, filing head of household. She has two dependent children (7-year-old twins) who lived with her all year. Her 2018 earned income was $18,600, her AGI was $22,700, and
Mike Webb, married to Nancy Webb, is employed by a large pharmaceutical company and earns a salary. In addition, Mike is an entrepreneur and has two small businesses on the side, both of which
Pedro Bourbone is the founder and owner of a highly successful small business and, over the past several years, has accumulated a significant amount of personal wealth. His portfolio of stocks and
Mike and Linda are a married couple who file jointly. They have three dependent children who are full-time students in 2018. Mike and Linda provided $8,000 of support for each child. Information for
Gus coaches several developing professional tennis players as an employee of the Central Tennis Training Camp (CTTC). In May 2018, his ex-girlfriend Teresa, (a tennis player former client), alleged
During 2018, Angela sustains serious injuries from a snow-skiing accident. She incurs the following expenses:Item
Dan lives in Duncan, a small town in Arizona. Because of a rare blood disease, Dan is required to take special medical treatments once a month. The closest place these treatments are available to Dan
In 2018, Charla, a single taxpayer with no dependents, was severely hurt in a farm accident. Charla is 38 years old. The accident left Charla's legs 85% paralyzed. After incurring $14,000 of medical

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